siam senses 180811

T h a n a c h a r t S e c u r i t i e s This report is prepared by Thanachart Securities. Please contact our salesperson for authorisation. Please see the important notice on the back page. T h a n a c h a r t S e c u r i t i e s THAILAND STRATEGY NOTE 18 AUGUST 2011 S iam S enses E c onomic stabiliz ers Thailand isn’t immune to a weaker global economy and we expect slower GDP growth. However, its structural growth stories remain intact with economic stabilizers of an early end to the rate hike cycle, the third (populist) stimulus and stabilizing oil prices. The consumption boom continues despite potential short-term SET volatility. PIMPAKA NICHGAROON, CFA Head of Research 662 – 617 4900 [email protected] Thailand isn’t im mune so GDP grow th w ill slow The most direct impact from the western slowdown will be via exports but the deceleration won’t be severe as Thai exports are structurally competitive, staying solid through multiple years of concerns about a strengthening baht and weak western growth. While the US and Europe account for only 20% to total exports, the resilient agri & foods sector and intra-region trade keep gaining ground. We cut our export growth assumptions from 9% to 6% in 2012F and 7% to 6% in 2013F. We also lower our inventory build-up in GDP projections in 2011-13. That leads to our new GDP growth forecasts of 4.5% and 4.0% in 2011-12 versus prior projections of 4.6% and 4.4%, respectively. Room for economic adjustments to stabilize growth In the wake of slower global gro wth, in Thailand we see a few economic adjustments that will help sustain growth. 1) Stabilizing commodities prices, peaking inflation and a strengthening currency can bring forward the end of the rate hike cycle. 2) Lower oil prices without a soft commodities price crash (stickier demand) would be positive for Thailand. 3) The third stimulus via aggressive populist policies is on its way and tamer inflation will make its implementation easier. 4) With the government able to continue providing an easy credit environment and farm price support, the consumption boom will keep on going. Structural growt h stories prevail The SET is likely to follow global markets, exhibiting tremendous volatility over the short term with a lack of conviction. But when the dust settles, Thailand will see its structural growth and middle-income transition stories prevail. Consumption and investment growth are expected to continue while exports, albeit slower, won’t crash given larger exposure to intra-region growth. Government spending will continue with the new administration insisting on extreme populism given a potential new election in the next 12-18 months. Populist policies have long-term risk but they won’t blow up for the next few years (see Siam Senses – “Front-loaded growth” , dated 29 July). Short-term volatilit y, long-term value Having outperformed the MSCI ex-Japan Index by 39% in 2010-11, the SET may fall victim to short-term global market volatility despite its outperformance being justified by earnings growth of 36% in 2010 and 33% in 1H11. SET downside scenarios are 650 (another global financial crisis), 800 (historical low PE of 8x but no crisis), 890 (panic swing of 2STD or at 9x PE) and 980 (the most reasonable short-term volatility of 1STD or 10x PE). Short-term volatility could push back our year-end index target of 1,300 but we still believe the SET is on a long- term uptrend and it isn’t expensive at <11x 2012F PE. We maintain our position of no oil stocks and cut bank exposure (BBL) on a flattening yield curve and soon-to-end rate hikes. ADVANC is now in. Top Picks -EPS growth- –— PE —– Yield 11F 12F 11F 12F 11F (%) (%) (x) (x) (%) ADVANC* 9. 2 (10. 9) 14.1 15.8 7.1 BANPU 20.0 33.4 15.3 11.5 3.2 BGH 40.1 20.7 24.4 20.2 1.8 CPALL 20.2 24.8 27.7 22.2 2.9 DTAC 8. 0 (26. 1) 14.2 19.2 8. 8 IVL 101.3 6.0 13.0 12.3 1.7 KSL 962.7 22.4 14.5 11.9 1.6 KTB 50.7 20.2 1.6 ** 1.4 ** 4.0 SCB 30.1 17.4 2.2 ** 2.0 ** 3.3 TUF 81.4 18.2 14.0 11.8 2.2 Stock taken out BBL 13.0 16.2 1.2 ** 1.1 ** 2.7 Source: Thanachart estimates Note: * New addition **P/BV Good Ad Hoc Names -EPS growth- –— PE —– Yield 11F 12F 11F 12F 11F (%) (%) (x) (x) (%) BIGC 31.8 24.4 24.6 19.8 2.0 GLOBAL 22.6 32.9 29.2 22.0 1.0 MAKRO 27.9 25.0 24.9 19.9 3.2 RS (4.9) 14.7 11.3 9.9 4.0 SAMART 94.6 15.2 12.0 10.4 4.6 Source: Thanachart estimates SET Downside Scenarios 650 890 800 980 300 500 700 900 1100 Crisis 8x w it h 20% profit cut Worst panic 8x but no real crisis Volatility sw in g 1STD 10x Panic sw in g 2STD 9x Without a real crisis, there should be demand support at this level (SET Index) Source: Thanachart estimates

siam senses 180811

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